2 Powerful Reasons you should STOP doing CRO Right NOW


One might find it odd to talk about not doing conversion rate optimization (CRO) when CRO is one of the most popular ways of increasing conversions for a web based business. But as odd as it may sound,

CRO has always been the sub optimal way of optimizing your business performance.

Many analysts are familiar with limitations of CRO and never really say or do CRO. But by and large CRO is still considered as the most effective way to increase sales/revenue of a website.

So what is the problem with CRO then?

CRO is just another form of obsession with a single metric, here the ‘conversion rate’.

BRO (Bounce Rate optimization) or CVO (Conversion Volume Optimization) and RO (Revenue Optimization) are some other forms of obsession with a single metric.

When we are too much obsessed with any one metric, we tend to lose the focus from the big picture i.e. the business bottomline, the net profit.

In the next few minutes I will convince you, why CRO is sub-optimal way of optimizing your business bottomline and why you should focus on optimizing business metrics like revenue and cost.

Note: Throughout this post whenever I talk about conversion rate, I am talking about e-commerce conversion rate. But my suggestions are also equally valid for goal conversion rate.

 

Conversion Rate is not that powerful

Contrary to popular belief

Conversion rate has weak positive correlation with revenue and zero correlation with cost and revenue is all that matters at the end of the day.

The conversion rate has little impact on optimizing revenue and absolutely no impact on optimizing cost.

The two metrics that actually drive revenue are: ‘average order value’ and ‘number of transactions’.

The conversion rate on the other hand has secondary impact on revenue because it doesn’t take into account ‘average order value’ in its calculation and it is a ratio metric in which the increase in traffic (visits) always tends to lower the value of the conversion rate.

It is quite possible and common that:

Increase in conversion rate results in decrease in revenue.

Decrease in conversion rate results in increase in revenue.

Increase in conversion rate actually results in decrease in gross profit

I have explained all these correlations in great detail in the post: Case Study: Why you should Stop Optimizing for Conversion Rate.

Because of the secondary impact of conversion rate on revenue and zero impact on the cost, it is no more important than a metric like Bounce Rate.

Ok little bit more important than bounce rate.

But just like you won’t measure the success or failure of your marketing efforts only on the basis of bounce rate, you won’t measure the success or failure of your marketing efforts only on the basis of conversion rate.

In order to truly optimize revenue you need to focus on increasing average order value and number of transactions for each of your market segment, product categories and other portfolios of outcomes.

So next time you carry out a test to optimize your business performance, focus on how the change is impacting the average order value, transactions volume and the acquisition cost. Don’t be fooled by the misleading conversion rate metric.

When you say you do CRO, you imply that all of your marketing efforts are conversion rate centric. You imply that all you care about is increasing conversion rate.

In order to get optimum results from your marketing efforts, you need to focus on the metrics that really matters i.e. revenue and cost.

And when you change your focus from conversion rate to more useful metrics like revenue and cost, you are no longer doing CRO as your marketing efforts are no longer conversion rate centric.

 

You Can’t Really Optimize Conversion Rate

As odd it may sound but you can’t really optimize conversion rate. Yet there are millions of blog posts out there teaching you CRO every breathing minute.

Following are two simple reasons:

1.  Web analytics tools like Google Analytics puts each and every visit on your website in the conversion funnel while computing conversion rates.

Not every visit leads to conversion, yet the formula for calculating the conversion rate is: number of transactions/total visits

Now the question that arises is that can you really optimize each and every visit on your website for conversion?

The answer is “you can’t”. You will always get some traffic which won’t convert no matter what.

 

2.  Now let us assume that you calculate conversion rate differently. Instead of taking visits into account, you take visitors into account.

So your formula for calculating the conversion rate is now: number of transactions/total visitors.

Now the question that arises is that can you really optimize each and every visitor of your website for conversion?

The answer is “you can’t”. You will always get some visitors which won’t convert no matter what.

These visitors can be people like job seekers, competitors, link builders or people who are just on your website for a reason other than completing a goal conversion or placing an order.

Other than these two simple reasons

the conversion rate metric is innately prone to errors simply because it is a ratio metric.

The ever increasing traffic on your website will always tend to lower the conversion rate.

Since conversion rate is a ratio metric, you can’t set achievable targets for it with any ease like increase the conversion rate by 5% in the next 6 months.

Conversion rates are horribly prone to misinterpretation. 

You don’t get what you see in case of conversion rate.

Conversion rate has got statistical significance issues, data collection, data interpretation and data reporting issues.

I have talked about all these issues in great detail in the posts:

  1. Here is Why Conversion Volume Optimization is better than CRO
  2. Is your conversion Rate Statistically Significant?

 

If you are still not convinced then please share your thoughts in the comments below. I would love to know why we should still keeping doing CRO.

Other Posts you may find usefulHigh Level Search Marketing Optimization in Google Analytics

 

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  • Nick Nelson

    The funny thing is you’ll always hear the high-level guys saying that CRO is king. “Increase our conversion only a half of a percentage equals millions of dollars in the bank”

  • http://twitter.com/curtissinclair KURT.

    Forgive me if I’m wrong but, if you opt for Number of Transactions and AOV as your success metrics, you’d have to send equal traffic (visits or visitors – take your pick) to the challenger and control pages to determine a winner, right?

    When you run any split test there’s a chance that your challenger page won’t perform as well as the control – it’s the nature of experimenting based on hypotheses: you won’t always be right. What you’re suggesting requires me to convince each of my clients to expose my experiments/tests to AT LEAST half of their traffic, and if I wanted to test two challenger pages against a control simultaneously, splitting the traffic equally would mean that I’m exposing 66% of the traffic to challengers; this percentage obviously increases with the number of simultaneous tests. Whether your turning over a few hundred bucks or many millions in revenue, your suggestion carries too much risk.

    Alternatively, I’d need to ask my clients to create a copy of the control page (or do it myself), and only run my experiments on the challenger(s) and the copy of the control.

    Adopting a method of equal traffic to every test page just isn’t practical. If ratios are good enough for statisticians, then they’re good enough for me. CROs the world over are still capable of looking at metrics holistically and driving all important revenue increases without relabeling the discipline or changing it entirely. How many people advocate looking at conversion rate in isolation anyway?

    • seohimanshu

      Hi Kurt!

      Anyone who selects ‘conversion rate’ as a success metric for its test is knowingly or unknowingly advocating to look at conversion rate in isolation. In testing it is quite common to select a winner on the basis of conversion rate alone. Statisticians interpret ratios very carefully because they are well aware of their limitations. This is not always the case with marketers and analysts. There is no point focusing on improving the conversion rate if there is a negative correlation between conversion rate and AOV/transactions

  • http://twitter.com/codyboyte Cody Boyte

    Working at a SaaS company where 1/4 of our visitors are already Members, we had to build workarounds to get rid of existing Members from our numbers. Otherwise, as we grow our conversion rate drops by default. The more you focus on CRO, the more of these strange situations you run into.

    You should watch conversion rates to make sure they’re not changing dramatically without reason, but otherwise trying too hard to overoptimize for CR can end up killing your brand equity (which drives long-term revenue). Good post.

    • seohimanshu

      That’s a good example you have shared. Thanks.

  • http://deepfootprints.co.uk/ Joel Chudleigh

    I think that you have an OK point about AOV and transactions being the 2 key measurements of success but if we make the assumption that traffic quality remains constant and AOV remains constant over time then increasing the conversion rate does actually mean increasing transactions. Yes, you can set up all kinds of conversions in tools such as GA but usually the primary conversion goal type for an e-commerce site is transactions.
    I think that the point that you should be making is that the term “conversion rate optimisation” is not broad enough to cover all of the considerations that you should be taking into account whilst trying to increase the performance of your website – perhaps “website performance optimisation” would be a better term.
    I think that when most people work on improving conversion rate it is revenue and transaction numbers that they are directly concentrating on.

    • seohimanshu

      Hi Joel!

      As i pointed out earlier that the fundamental problem with ‘conversion rate is that it is a ratio metric. So increase in conversion rate does not always means increase in transactions even if we keep AOV constant. I can increase the conversion rate by decreasing the website traffic.

      AOV can be much more important than transaction volumes in increasing sales and gross profit. For example you can sell 10 items of $10 each and make $100 in revenue at the marketing cost of say $20 or you can sell 5 items of $100 each and make $500 in revenue at the same marketing cost of $20. In the end you can make more money by focusing on high price items depending upon your business model and profit margin.

      • Roy Verkuijlen

        Hi Himanshu,

        Good post and an interesting take on CRO.

        You say: “As i pointed out earlier that the fundamental problem with ‘conversion rate is that it is a ratio metric. I can increase the conversion rate by decreasing the website traffic”.

        As an analyst it is key to be able to place things into perspective. Just by looking at CRO from an holistic point of view might give you a wrong impression since the data in aggregate. Therefore I believe CRO works, but you should always try to segment your data into meaningful groups. For example: Non-members vs. Members, light/medium/heavy users, traffic source, etc.

        Then again, I hear what you say and I agree that especially for e-commerce organizations you should not only focus on CRO. With one client we experienced just that: CRO increased but the EBITDA decreased because the AOV took a small punch in the face.

        Keep in mind that with AOV you should keep on eye on AOV outliers as these can really impact your results. I guess there is a BUT behind every metric :-)

        • seohimanshu

          My only objection is not to say or do CRO. Not being obsessed about this metric. I am not saying to discard the conversion rate metric. It is a good KPI. Good point about AOV outliers. That’s why i use AOV of a product category to minimize the damage.

          • Guillaume

            Actually you should be using Median Order Value, since your test is typically running for a couple of weeks it will automatically discard outliers and will give you a more realistic value. I also think the title of this post is misleading – if someone only uses CR and AOV (I use MOV, regardless) only as KPIs, then you are heading for trouble. I always have at least 4 KPIs that have a direct correlation so I can measure the impact on each and decide which optimal version is my winner based on my business priorities. So, YES, DO TEST, just make sure you know hwat you are doing!

            • seohimanshu

              There is no such metric as median order value. Sure you can go ahead and calculate it manually. But no analytics software provide such type of metrics. So it is not useful for this discussion.

              Title of the post is perfectly valid. I have proved it again and again, CRO is completely and utterly pointless. Please read other posts linked to this article. CR and AOV are just used an example to prove my point. I have not said anywhere to rely only on just these two metrics.

  • http://twitter.com/JosephPutnam Joseph Putnam

    Hi Himanshu, this is an interesting take on CRO, and valid at that. There are weaknesses with CRO that every marketer should and must realize. However, I don’t know that I would completely write it off as you have here. In many instances, increasing the conversion rate makes a lot of sense for many business, so long as you pay attention to the bottom line impact. I haven’t studied eCommerce as much but it’s definitely true for SaaS. With that said, it shouldn’t be the only metric. For instance, it’s possible that a spike in traffic brings people to your site that aren’t part of the target market. This will lead to lower conversion rates but increased exposure and awareness for a brand. There’s also the fact that many customers don’t buy the first time they visit a site. They may end up purchasing six months or more later. So pure conversion rate numbers can’t measure the benefit of extra traffic that doesn’t convert today. With that said, it makes sense to know what a companies goals are and to optimize the number of people who take those steps. If some customers are on the fence, you definitely want to push them over with CRO if at all possible. This will have a positive impact on revenue. So the bottom line, if you will, is that CRO is definitely a smart thing to do for most if not all businesses, but it’s not the end all be all metric and should be considered along with the other metrics that you’ve mentioned. Would you agree?

    p.s. I just found your blog today and look forward to reading and commenting more.

    • seohimanshu

      Yes i agree with you what you said. But my point is not to say or do CRO. It is very difficult for majority of marketers to focus on the big picture as long as they say or do CRO. Because at the end of the day CRO is just about optimizing conversion rates and we are here to make more money for our clients which is not possible unless we strongly focus on optimizing revenue and decreasing cost.